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Younger Investors Buck the Trend and Prefer These Investments

Written by: MainStreet09/30/13 - 4:41 PM EDT

By Hal M. Bundrick

NEW YORK (MainStreet) ¿ I guess he's an Xbox, and I'm more Atari. It seems older investors are leaning to exchange traded funds while their younger counterparts are digging vintage -- preferring mutual funds. A Spectrem Group report analyzing four different age segments: under 44, 45-54, 55 to 64 and 65 and older, shows older investors are more heavily invested in ETFs than any other age group.

ETFs and mutual funds are both investment pools, but mutual funds are priced and traded once per day, while exchange traded funds are continuously traded throughout market hours. Mutual funds gained broad acceptance among American investors in the 1920s, while ETFs achieved wide trading status in the U.S. in 1993.

Over the past five years, ETF ownership has risen from 16% to 28% of all investors. Only about a quarter of the two younger age segments owned ETFs, compared to 31% of the oldest age bracket.

Asked to pick a preference between the two investment vehicles, 30% of all investors preferred mutual funds, but 44% of the youngest investors chose mutual funds. Nearly half (47%) of all investors liked having both ETFs and mutual funds in their portfolio, but only 31% of the youngest subset agreed with that statement. A majority (54%) of the oldest age group said they preferred having both in their portfolio.

Of the investors placing ETFs in their portfolios, 44% reported doing so because of performance history, as well as at the recommendation of an advisor. Most of the youngest investors (22%) bought-into ETFs because of recommendations from family and friends.

It seems older investors also have a strong inclination to continue adding to their ETF holdings, compared to the whole. While nearly two thirds (64%) of all respondents from all age groups said they would consider moving more of their mutual fund assets into ETFs, 78% of the 55-64 age segment said they would consider such a move -- 14% above the average.